EMPLOYMENT AGREEMENT
Exhibit 10.1
THIS AGREEMENT, made and entered into as of this
10th day of February, 2006, by and between The Kansas City
Southern Railway Company, a Missouri corporation
(“Railway”), Kansas City Southern, a Delaware
corporation (“KCS”) and Xxxxxxx X. Xxxx, an individual
(“Executive”).
WHEREAS, Executive has been offered employment by
Railway, and Railway, KCS and Executive desire for Railway to
continue to employ Executive on the terms and conditions set
forth in this Agreement and to provide an incentive to Executive
to remain in the employ of Railway hereafter, particularly in
the event of any change in control (as herein defined) of KCS,
or Railway , thereby establishing and preserving continuity of
management of Railway.
NOW, THEREFORE, in consideration of the mutual covenants
and agreements herein contained, it is agreed by and between
Railway, KCS and Executive as follows:
1. Employment. Railway
hereby employs Executive as Senior Vice President International
Purchasing & Materials to serve at the pleasure of the
Board of Directors of Railway (the “Railway Board”)
and to have such duties, powers and responsibilities as may be
prescribed or delegated from time to time by the President or
other officer to whom Executive reports, subject to the powers
vested in the Railway Board and in the stockholders of Railway.
Executive shall faithfully perform his duties under this
Agreement to the best of his ability and shall devote
substantially all of his working time and efforts to the
business and affairs of Railway and its affiliates.
2. Compensation.
(a) Base Compensation. Railway
shall pay Executive as compensation for his services hereunder
an annual base salary at the rate approved by the Railway’s
Compensation Committee. Such rate shall not be reduced except as
agreed by the parties or except as part of a general salary
reduction program imposed by Railway for non-union employees and
applicable to all officers of Railway, not related to a Change
of Control.
3. Benefits. During the
period of his employment hereunder, Railway shall provide
Executive with coverage under such benefit plans and programs as
are made generally available to similarly situated employees of
Railway, provided (a) Railway shall have no obligation with
respect to any plan or program if Executive is not eligible for
coverage thereunder, and (b) Executive acknowledges that
stock options and other stock and equity participation awards
are granted in the discretion of the Railway Board or the
Compensation Committee of the Railway Board and that Executive
has no right to receive stock options or other equity
participation awards or any particular number or level of stock
options or other awards. In determining contributions, coverage
and benefits under any disability insurance policy and under any
cash compensation-based plan provided to Executive by Railway,
it shall be assumed that the value of Executive’s annual
compensation, pursuant to this Agreement, is 145% of
Executive’s annual base salary. Executive acknowledges that
all rights and benefits under benefit plans and programs shall
be governed by the official text of each plan or program and not
by any summary or description thereof or any provision of this
Agreement (except to the extent that this Agreement expressly
modifies such benefit plans or programs) and that neither KCS,
nor Railway is under any obligation to continue in effect or to
fund any such plan or program, except as provided in
Paragraph 7 hereof.
4. Term and Termination.
The “Term” of this Agreement shall begin on the date
first written above and continue until terminated as provided in
(a) through (d) of this Section 4.
(a) Termination by
Executive. Executive may terminate this
Agreement and his employment hereunder by providing at least
thirty (30) days advance written notice to Railway, except
that in the event of any material breach of this Agreement by
Railway, Executive may terminate this Agreement and his
employment hereunder immediately upon notice to Railway.
(b) Death or Disability. This
Agreement and Executive’s employment hereunder shall
terminate automatically on the death or disability of Executive,
except to the extent employment is continued under
Railway’s disability plan. For purposes of this Agreement,
Executive shall be deemed to be disabled if he qualifies for
disability benefits under Railway’s long-term disability
plan.
(c) Termination by Railway For
Cause. Railway may terminate this Agreement
and Executive’s employment “for cause”
immediately upon notice to Executive. For purposes of this
Agreement (except for Paragraph 7), termination “for
cause” shall mean termination based upon any one or more of
the following:
(i) Any material breach of this Agreement by Executive;
(ii) Executive’s dishonesty involving Railway, KCS, or
any subsidiary of Railway or KCS;
(iii) Gross negligence or willful misconduct in the
performance of Executive’s duties as determined in good
faith by the Railway Board;
(iv) Executive’s failure to substantially perform his
duties and responsibilities hereunder, including without
limitation Executive’s willful failure to follow reasonable
instructions of the President or other officer to whom Executive
reports;
(v) Executive’s breach of an express employment policy
of Railway or its affiliates;
(vi) Executive’s fraud or criminal activity;
(vii) Embezzlement or misappropriation by Executive; or
(viii) Executive’s breach of his fiduciary duty to
Railway, or KCS, or their affiliates.
(d) Termination by Railway Other Than For
Cause.
(i) Railway may terminate this Agreement and
Executive’s employment other than for cause immediately
upon notice to Executive, and in such event, Railway shall
provide severance benefits to Executive in accordance with
Paragraph 4(d)(ii) below. Executive acknowledges and agrees
that such severance benefits constitute the exclusive remedy of
Executive upon termination of employment other than for cause.
Notwithstanding any other provision of this Agreement, as a
condition to receiving such severance benefits, Executive shall
execute a full release of claims in favor of Railway and KCS and
their affiliates in the form Attached hereto as Appendix A.
(ii) Unless the provisions of Paragraph 7 of this
Agreement are applicable, if Executive’s employment is
terminated under Paragraph 4(d)(i), Railway shall continue,
for a period of one (1) year following such termination,
(a) to pay to Executive as severance pay a monthly amount
equal to one-twelfth (1/12th) of the annual base salary
referenced in Paragraph 2(a) above, at the rate in effect
immediately prior to termination, and, (b) to reimburse
Executive for the cost (including state and federal income taxes
payable with respect to this reimbursement) of continuing the
health insurance coverage provided pursuant to this Agreement or
obtaining health insurance coverage comparable to the health
insurance provided pursuant to this Agreement, and obtaining
coverage comparable to the life insurance provided pursuant to
this Agreement, unless Executive is provided comparable health
or life insurance coverage in connection with other employment.
The foregoing obligations of Railway shall continue until the
end of such one (1) year period notwithstanding the death
or disability of Executive during said period (except, in the
event of death, the obligation to reimburse Executive for the
cost of life insurance shall not continue). In the year in which
termination of employment occurs, Executive shall be eligible to
receive benefits under the Railway Incentive Compensation Plan
and any Executive Plan in which Executive participates (the
“Executive Plan”) (if such Plans then are in existence
and Executive was entitled to participate immediately prior to
termination) in accordance with the provisions of such plans
then applicable, and severance pay received in such year shall
be taken into account for the purpose of determining benefits,
if any, under the Railway Incentive Compensation Plan but not
under the Executive Plan. After the year in which termination
occurs, Executive shall not be entitled to accrue or receive
benefits under the Railway Incentive Compensation Plan or the
Executive Plan with respect to the severance pay provided
herein, notwithstanding that benefits under such plan there are
still generally available to executive employees of Railway.
After termination of employment, Executive shall not be entitled
to accrue or receive
2
benefits under any other employee benefit plan or program,
except that Executive shall be entitled to participate in the
KCS Section 401(k) and Profit Sharing Plan and the KCS
Employee Stock Ownership Plan (if Railway employees then still
participate in such plans) in the year of termination of
employment only if Executive meets all requirements of such
plans for participation in such year.
5. Confidentiality and Non-Disclosure.
(a) Executive understands and agrees that he will be given
Confidential Information (as defined below) during his
employment with Railway relating to the business of Railway, KCS
and/or their
affiliates, in exchange for his agreement herein. Executive
hereby expressly agrees to maintain in strictest confidence and
not to use in any way (including without limitation in any
future business relationship of Executive), publish, disclose or
authorize anyone else to use, publish or disclose in any way,
any Confidential Information relating in any manner to the
business or affairs of Railway, KCS
and/or their
affiliates. Executive agrees further not to remove or retain any
figures, calculations, letters, documents, lists, papers, or
copies thereof, which embody Confidential Information of
Railway, KCS
and/or their
affiliates, and to return, prior to Executive’s termination
of employment for any reason, any such information in
Executive’s possession. If Executive discovers, or comes
into possession of, any such information after his termination
he shall promptly return it to Railway. Executive acknowledges
that the provisions of this paragraph are consistent with
Railway’s policies and procedures to which Executive, as an
employee of Railway, is bound.
(b) For purposes of this Agreement, “Confidential
Information” includes, but is not limited to, information
in the possession of, prepared by, obtained by, compiled by, or
that is used by Railway, KCS or their affiliates or customers,
and: (i) is proprietary to, about, or created by Railway,
KCS or their affiliates or customers; (ii) gives Railway,
KCS or their affiliates or customers some competitive business
advantage, the opportunity of obtaining such advantage, or
disclosure of which might be detrimental to the interest of
Railway, KCS or their affiliates or customers; and (iii) is
not typically disclosed by Railway, KCS or their affiliates or
customers, or known by persons who are not employed by Railway,
KCS or their affiliates or customers. Without in any way
limiting the foregoing and by way of example, Confidential
Information shall include: information pertaining to
Railway’s, KCS’s or their affiliates’ business
operations such as financial and operational information and
data, operational plans and strategies, business and marketing
strategies, pricing information, plans for various products and
services, and acquisition and divestiture planning.
(c). In the event of any breach of this Paragraph 5 by
Executive, Railway shall be entitled to terminate any and all
remaining severance benefits under Paragraph 4(d)(ii) and
shall be entitled to pursue such other legal and equitable
remedies as may be available. Executive acknowledges,
understands and agrees that Railway, KCS
and/or their
affiliates will suffer immediate and irreparable harm if
Executive fails to comply with any of his obligations under
Paragraph 5 of this Agreement, and that monetary damages
alone will be inadequate to compensate Railway, KCS or their
affiliates for such breach. Accordingly, Executive agrees that
Railway, KCS
and/or their
affiliates shall, in addition to any other remedies available to
it at law or in equity, be entitled to temporary, preliminary,
and permanent injunctive relief and specific performance to
enforce the terms of Paragraph 5 without the necessity of
proving inadequacy of legal remedies or irreparable harm or
posting bond.
6. Duties Upon Termination; Survival.
(a) Duties. Upon termination of
this Agreement by Railway or Executive for any reason, Executive
shall immediately sign such written resignations from all
positions as an officer, director or member of any committee or
board of Railway and all direct and indirect subsidiaries and
affiliates of Railway as may be requested by Railway and shall
sign such other documents and papers relating to
Executive’s employment, benefits and benefit plans as
Railway may reasonably request.
(b) Survival. The provisions of
Paragraphs 5, 6(a) and 7 of this Agreement shall survive
any termination of this Agreement by Railway or Executive, and
the provisions of Paragraph 4(d)(ii) shall survive any
termination of this Agreement by Railway under
Paragraph 4(d)(i).
3
7. Continuation of Employment Upon Change in
Control.
(a) Continuation of
Employment. Subject to the terms and
conditions of this Paragraph 7, in the event of a Change in
Control (as defined in Paragraph 7(d)) at any time during
the term of this Agreement, Executive agrees to remain in the
employ of Railway for a period of three years (the “Three
Year Period”) from the date of such Change in Control (the
“Control Change Date”). Railway agrees to continue to
employ Executive for the Three Year Period. During the Three
Year Period, (i) the Executive’s position (including
offices, titles, reporting requirements and responsibilities),
authority and duties shall be at least commensurate in all
material respects with the most significant of those held,
exercised and assigned at any time during the 12 month
period immediately before the Control Change Date and
(ii) the Executive’s services shall be performed at
the location where Executive was employed immediately before the
Control Change Date or at any other location less than
40 miles from such former location. During the Three Year
Period, Railway shall continue to pay to Executive an annual
base salary on the same basis and at the same intervals as in
effect prior to the Control Change Date at a rate not less than
12 times the highest monthly base salary paid or payable to the
Executive by Railway in respect of the
12-month
period immediately before the Control Change Date.
(b) Benefits. During the
Three-Year Period, Executive shall be entitled to participate,
on the basis of his executive position, in each of the following
KCS, or Railway plans (together, the “Specified
Benefits”) in existence, and in accordance with the terms
thereof, at the Control Change Date:
(i) any benefit plan, and trust fund associated therewith,
related to: (A) life, health, dental, disability,
accidental death and dismemberment insurance or accrued but
unpaid vacation time; (B) profit sharing, thrift or
deferred savings (including deferred compensation, such as under
Sec. 401(k) plans); (C) retirement or pension benefits;
(D) ERISA excess benefits and similar plans and
(E) tax favored employee stock ownership (such as under
ESOP, and Employee Stock Purchase programs); and
(ii) any other benefit plans hereafter made generally
available to executives of Executive’s level or to the
employees of Railway generally.
In addition, Railway and KCS shall use their best efforts to
cause all outstanding options held by Executive under any stock
option plan of KCS or its affiliates to become immediately
exercisable on the Control Change Date and to the extent that
such options are not vested and are subsequently forfeited, the
Executive shall receive a lump-sum cash payment within
5 days after the options are forfeited equal to the
difference between the fair market value of the shares of stock
subject to the non-vested, forfeited options determined as of
the date such options are forfeited and the exercise price for
such options. During the Three-Year Period Executive shall be
entitled to participate, on the basis of his executive position,
in any incentive compensation plan of KCS, or Railway in
accordance with the terms thereof at the Control Change Date;
provided that if under KCS, or Railway programs or
Executive’s Employment Agreement in existence immediately
prior to the Control Change Date, there are written limitations
on participation for a designated time period in any incentive
compensation plan, such limitations shall continue after the
Control Change Date to the extent so provided for prior to the
Control Change Date.
If the amount of contributions or benefits with respect to the
Specified Benefits or any incentive compensation is determined
on a discretionary basis under the terms of the Specified
Benefits or any incentive compensation plan immediately prior to
the Control Change Date, the amount of such contributions or
benefits during the Three Year Period for each of the Specified
Benefits shall not be less than the average annual contributions
or benefits for each Specified Benefit for the three plan years
ending prior to the Control Change Date and, in the case of any
incentive compensation plan, the amount of the incentive
compensation during the Three Year Period shall not be less than
75% of the maximum that could have been paid to the Executive
under the terms of the incentive compensation plan.
(c) Payment. With respect to any
plan or agreement under which Executive would be entitled at the
Control Change Date to receive Specified Benefits or incentive
compensation as a general obligation of Railway which has not
been separately funded (including specifically, but not limited
to, those referred to
4
under Paragraph 7(b)(i)(D) above), Executive shall receive
within five (5) days after such date full payment in cash
of all amounts to which he is then entitled thereunder.
(d) Change in Control. For
purposes of this Agreement, a “Change in Control”
shall be deemed to have occurred if:
(i) for any reason at any time less than seventy-five
percent (75%) of the members of the KCS Board shall be
individuals who fall into any of the following categories:
(A) individuals who were members of the KCS Board on the
date of the Agreement; or (B) individuals whose election,
or nomination for election by KCS’s stockholders, was
approved by a vote of at least seventy-five percent (75%) of the
members of the KCS Board then still in office who were members
of the KCS Board on the date of the Agreement; or
(C) individuals whose election, or nomination for election,
by KCS’s stockholders, was approved by a vote of at least
seventy-five percent (75%) of the members of the KCS Board then
still in office who were elected in the manner described in
(A) or (B) above, or
(ii) any “person” (as such term is used in
Sections 13(d) and 14(d)(2) of the Securities Exchange Act
of 1934 (the “Exchange Act”)) other than KCS shall
have become after September 18, 1997, according to a public
announcement or filing, the “beneficial owner” (as
defined in
Rule 13d-3
under the Exchange Act), directly or indirectly, of securities
of Railway or KCS representing thirty percent (30%) (or, with
respect to Paragraph 7(c) hereof, 40%) or more (calculated
in accordance with
Rule 13d-3)
of the combined voting power of Railway’s or KCS’s
then outstanding voting securities; or
(iii) the stockholders of Railway or KCS shall have
approved a merger, consolidation or dissolution of Railway or
KCS or a sale, lease, exchange or disposition of all or
substantially all of Railway’s or KCS’s assets, if
persons who were the beneficial owners of the combined voting
power of Railway’s or KCS’s voting securities
immediately before any such merger, consolidation, dissolution,
sale, lease, exchange or disposition do not immediately
thereafter, beneficially own, directly or indirectly, in
substantially the same proportions, more than 60% of the
combined voting power of any corporation or other entity
resulting from any such transaction.
(e) Termination After Control Change
Date. Notwithstanding any other provision of
this Paragraph 7, at any time after the Control Change
Date, Railway may terminate the employment of Executive (the
“Termination”), but unless such Termination is for
Cause as defined in subparagraph (g) or for
disability, within five (5) days of the Termination Railway
shall pay to Executive his full base salary through the
Termination, to the extent not theretofore paid, plus a lump sum
amount (the “Special Severance Payment”) equal to the
product of (i) 160% of his annual base salary specified in
Paragraph 7(a) multiplied by (ii) Two; and Specified
Benefits (excluding any incentive compensation) to which
Executive was entitled immediately prior to Termination shall
continue until the end of the
3-year
period (“Benefits Period”) beginning on the date of
Termination. If any plan pursuant to which Specified Benefits
are provided immediately prior to Termination would not permit
continued participation by Executive after Termination, then
Railway shall pay to Executive within five (5) days after
Termination a lump sum payment equal to the amount of Specified
Benefits Executive would have received under such plan if
Executive had been fully vested in the average annual
contributions or benefits in effect for the three plan years
ending prior to the Control Change Date (regardless of any
limitations based on the earnings or performance of KCS, or
Railway) and a continuing participant in such plan to the end of
the Benefits Period. Following the end of the Benefits Period,
Railway shall continue to provide to the Executive and the
Executive’s family the following benefits
(“Post-Period Benefits”): (1) prior to the
Executive’s attainment of age sixty (60), health,
prescription and dental benefits equivalent to those then
applicable to active peer executives of Railway) and their
families, as the same may be modified from time to time, and
(2) following the Executive’s attainment of age sixty
(60) (and without regard to the Executive’s period of
service with Railway) health and prescription benefits
equivalent to those then applicable to retired peer executives
of Railway and their families immediately prior to the Change of
Control. The cost to the Executive of such Post-Period Benefits
shall not exceed the cost of such benefits to active or retired
(as applicable) peer executives immediately prior to the Change
of Control. Notwithstanding the preceding two sentences of this
Paragraph 7(e), if the Executive is covered under any
health, prescription or dental plan provided by a subsequent
employer, then the corresponding type of plan coverage (i.e.,
health,
5
prescription or dental), required to be provided as Post-Period
Benefits under this Paragraph 7(e) shall cease. The
Executive’s rights under this Paragraph 7(e) shall be
in addition to, and not in lieu of, any post-termination
continuation coverage or conversion rights the Executive may
have pursuant to applicable law, including without limitation
continuation coverage required by Section 4980 of the Code.
Nothing in this Paragraph 7(e) shall be deemed to limit in
any manner the reserved right of Railway, in its sole and
absolute discretion, to at any time amend, modify or terminate
health, prescription or dental benefits for active or retired
employees generally.
(f) Resignation After Control Change
Date. In the event of a Change in Control as
defined in Paragraph 7(d), thereafter, upon good reason (as
defined below), Executive may, at any time during the three-year
period following the Change in Control, in his sole discretion,
on not less than thirty (30) days’ written notice (the
“Notice of Resignation”) to the Secretary of Railway
and effective at the end of such notice period, resign his
employment with Railway (the “Resignation”). Within
five (5) days of such a Resignation, Railway shall pay to
Executive his full base salary through the effective date of
such Resignation, to the extent not theretofore paid, plus a
lump sum amount equal to the Special Severance Payment (computed
as provided in the first sentence of Paragraph 7(e), except
that for purposes of such computation all references to
“Termination” shall be deemed to be references to
“Resignation”). Upon Resignation of Executive,
Specified Benefits to which Executive was entitled immediately
prior to Resignation shall continue on the same terms and
conditions as provided in Paragraph 7(e) in the case of
Termination (including equivalent payments provided for
therein), and Post-Period Benefits shall be provided on the same
terms and conditions as provided in Paragraph 7(e) in the
case of Termination. For purposes of this Agreement, “good
reason” means any of the following:
(i) the assignment of the Executive of any duties
inconsistent in any respect with the Executive’s position
(including offices, titles, reporting requirements or
responsibilities), authority or duties as contemplated by
Section 7(a)(i), or any other action by Railway which
results in a diminution or other material adverse change in such
position, authority or duties;
(ii) any failure by Railway to comply with any of the
provisions of Paragraph 7;
(iii) Railway’s requiring the Executive to be based at
any office or location other than the location described in
Section 7(a)(ii);
(iv) any other material adverse change to the terms and
conditions of the Executive’s employment; or
(v) any purported termination by Railway of the
Executive’s employment other than as expressly permitted by
this Agreement (any such purported termination shall not be
effective for any other purpose under this Agreement).
A passage of time prior to delivery of the Notice of Resignation
or a failure by the Executive to include in the Notice of
Resignation any fact or circumstance which contributes to a
showing of Good Reason shall not waive any right of the
Executive under this Agreement or preclude the Executive from
asserting such fact or circumstance in enforcing rights under
this Agreement.
(g) Termination for Cause After Control Change
Date. Notwithstanding any other provision of
this Paragraph 7, at any time after the Control Change
Date, Executive may be terminated by Railway “for
cause.” Cause means commission by the Executive of any
felony or willful breach of duty by the Executive in the course
of the Executive’s employment; except that Cause shall not
mean:
(i) bad judgment or negligence;
(ii) any act or omission believed by the Executive in good
faith to have been in or not opposed to the interest of Railway
(without intent of the Executive to gain, directly or
indirectly, a profit to which the Executive was not legally
entitled);
(iii) any act or omission with respect to which a
determination could properly have been made by the Railway Board
that the Executive met the applicable standard of conduct for
indemnification or
6
reimbursement under Railway’s by-laws, any applicable
indemnification agreement, or applicable law, in each case in
effect at the time of such act or omission; or
(iv) any act or omission with respect to which Notice of
Termination of the Executive is given, more than 12 months
after the earliest date on which any member of the Railway
Board, not a party to the act or omission, knew or should have
known of such act or omission.
Any Termination of the Executive’s employment by Railway
for Cause shall be communicated to the Executive by Notice of
Termination.
(h) Gross-up
for Certain Taxes. If it is determined (by
the reasonable computation of Railway’s independent
auditors, which determinations shall be certified to by such
auditors and set forth in a written certificate
(“Certificate”) delivered to the Executive) that any
benefit received or deemed received by the Executive from
Railway, or KCS pursuant to this Agreement or otherwise
(collectively, the “Payments”) is or will become
subject to any excise tax under Section 4999 of the Code or
any similar tax payable under any United States federal, state,
local or other law (such excise tax and all such similar taxes
collectively, “Excise Taxes”), then Railway shall,
immediately after such determination, pay the Executive an
amount (the
“Gross-up
Payment”) equal to the product of:
(i) the amount of such Excise Taxes; multiplied by
(ii) the
Gross-up
Multiple (as defined in Paragraph 7(k)).
The Gross-up
Payment is intended to compensate the Executive for the Excise
Taxes and any federal, state, local or other income or excise
taxes or other taxes payable by the Executive with respect to
the Gross-up
Payment.
Railway shall cause the preparation and delivery to the
Executive of a Certificate upon request at any time. Railway
shall, in addition to complying with this Paragraph 7(h),
cause all determinations and certifications under
Paragraphs 7(h)-(o)
to be made as soon as reasonably possible and in adequate time
to permit the Executive to prepare and file the Executive’s
individual tax returns on a timely basis.
(i) Determination by the Executive.
(i) If Railway shall fail to: (A) deliver a
Certificate to the Executive or (B) pay to the Executive
the amount of the
Gross-up
Payment, if any, within 14 days after receipt from the
Executive of a written request for a Certificate, or if at any
time following receipt of a Certificate the Executive disputes
the amount of the
Gross-up
Payment set forth therein, the Executive may elect to demand the
payment of the amount which the Executive, in accordance with an
opinion of counsel to the Executive (“Executive Counsel
Opinion”), determines to be the
Gross-up
Payment. Any such demand by the Executive shall be made by
delivery to Railway of a written notice which specifies the
Gross-up
Payment determined by the Executive and an Executive Counsel
Opinion regarding such
Gross-up
Payment (such written notice and opinion collectively, the
“Executive’s Determination”). Within 14 days
after delivery of the Executive’s Determination to Railway,
Railway shall either: (A) pay the Executive the
Gross-up
Payment set forth in the Executive’s Determination (less
the portion of such amount, if any, previously paid to the
Executive by Railway) or (B) deliver to the Executive a
Certificate specifying the
Gross-up
Payment determined by Railway’s independent auditors,
together with an opinion of Railway’s counsel
(“Railway Counsel Opinion”), and pay the Executive the
Gross-up
Payment specified in such Certificate. If for any reason Railway
fails to comply with clause (B) of the preceding
sentence, the
Gross-up
Payment specified in the Executive’s Determination shall be
controlling for all purposes.
(ii) If the Executive does not make a request for, and
Railway does not deliver to the Executive, a Certificate,
Railway shall, for purposes of Paragraph 7(j), be deemed to
have determined that no
Gross-up
Payment is due.
(j) Additional
Gross-up
Amounts. If, despite the initial conclusion
of Railway
and/or the
Executive that certain Payments are neither subject to Excise
Taxes nor to be counted in determining whether other Payments
are subject to Excise Taxes (any such item, a
“Non-Parachute Item”), it is later determined
(pursuant to
7
subsequently-enacted provisions of the Code, final regulations
or published rulings of the IRS, final IRS determination or
judgment of a court of competent jurisdiction or Railway’s
independent auditors) that any of the Non-Parachute Items are
subject to Excise Taxes, or are to be counted in determining
whether any Payments are subject to Excise Taxes, with the
result that the amount of Excise Taxes payable by the Executive
is greater than the amount determined by Railway or the
Executive pursuant to Paragraph 7(h) or
Paragraph 7(i), as applicable, then Railway shall pay the
Executive an amount (which shall also be deemed a
Gross-up
Payment) equal to the product of:
(i) the sum of (A) such additional Excise Taxes and
(B) any interest, fines, penalties, expenses or other costs
incurred by the Executive as a result of having taken a position
in accordance with a determination made pursuant to
Paragraph 7(h); multiplied by
(ii) the
Gross-up
Multiple.
(k) Gross-up
Multiple. The
Gross-up
Multiple shall equal a fraction, the numerator of which is one
(1.0), and the denominator of which is one (1.0) minus the sum,
expressed as a decimal fraction, of the rates of all federal,
state, local and other income and other taxes and any Excise
Taxes applicable to the
Gross-up
Payment; provided that, if such sum exceeds 0.8, it shall be
deemed equal to 0.8 for purposes of this computation. (If
different rates of tax are applicable to various portions of a
Gross-up
Payment, the weighted average of such rates shall be used.)
(l) Opinion of
Counsel. “Executive Counsel
Opinion” means a legal opinion of nationally recognized
executive compensation counsel that there is a reasonable basis
to support a conclusion that the
Gross-up
Payment determined by the Executive has been calculated in
accord with this Paragraph 7 and applicable law.
“Company Counsel Opinion” means a legal opinion of
nationally recognized executive compensation counsel that
(i) there is a reasonable basis to support a conclusion
that the
Gross-up
Payment set forth in the Certificate of Railway’s
independent auditors has been calculated in accord with this
Paragraph 7 and applicable law, and (ii) there is no
reasonable basis for the calculation of the
Gross-up
Payment determined by the Executive.
(m) Amount Increased or
Contested. The Executive shall notify Railway
in writing of any claim by the IRS or other taxing authority
that, if successful, would require the payment by Railway of a
Gross-up
Payment. Such notice shall include the nature of such claim and
the date on which such claim is due to be paid. The Executive
shall give such notice as soon as practicable, but no later than
10 business days, after the Executive first obtains actual
knowledge of such claim; provided, however, that any failure to
give or delay in giving such notice shall affect Railway’s
obligations under this Paragraph 7 only if and to the
extent that such failure results in actual prejudice to Railway.
The Executive shall not pay such claim less than 30 days
after the Executive gives such notice to Railway (or, if sooner,
the date on which payment of such claim is due). If Railway
notifies the Executive in writing before the expiration of such
period that it desires to contest such claim, the Executive
shall:
(i) give Railway any information that it reasonably
requests relating to such claim;
(ii) take such action in connection with contesting such
claim as Railway reasonably requests in writing from time to
time, including, without limitation, accepting legal
representation with respect to such claim by an attorney
reasonably selected by Railway;
(iii) cooperate with Railway in good faith to contest such
claim; and
(iv) permit Railway to participate in any proceedings
relating to such claim; provided, however, that Railway shall
bear and pay directly all costs and expenses (including
additional interest and penalties) incurred in connection with
such contest and shall indemnify and hold the Executive
harmless, on an after-tax basis, for any Excise Tax or income
tax, including related interest and penalties, imposed as a
result of such representation and payment of costs and expenses.
Without limiting the foregoing, Railway shall control all
proceedings in connection with such contest and, at its sole
option, may pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority
in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and xxx for a refund
or contest the claim in any permissible manner. The Executive
agrees to prosecute such
8
contest to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more appellate
courts, as Railway shall determine; provided, however, that if
Railway directs the Executive to pay such claim and xxx for a
refund, Railway shall advance the amount of such payment to the
Executive, on are interest-free basis and shall indemnify the
Executive, on an after-tax basis, for any Excise Tax or income
tax, including related interest or penalties, imposed with
respect to such advance; and further provided that any extension
of the statute of limitations relating to payment of taxes for
the taxable year of the Executive with respect to which such
contested amount is claimed to be due is limited solely to such
contested amount. The Railway’s control of the contest
shall be limited to issues with respect to which a
Gross-up
Payment would be payable. The Executive shall be entitled to
settle or contest, as the case may be, any other issue raised by
the IRS or other taxing authority.
(n) Refunds. If, after the receipt
by the Executive of an amount advanced by Railway pursuant to
Paragraph 7(m), the Executive receives any refund with
respect to such claim, the Executive shall (subject to
Railway’s complying with the requirements of
Paragraph 7(m)) promptly pay Railway the amount of such
refund (together with any interest paid or credited thereon
after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by Railway pursuant to
Paragraph 7(m), a determination is made that the Executive
shall not be entitled to a full refund with respect to such
claim and Railway does not notify the Executive in writing of
its intent to contest such determination before the expiration
of 30 days after such determination, then the applicable
part of such advance shall be forgiven and shall not be required
to be repaid and the amount of such advance shall offset, to the
extent thereof, the amount of
Gross-up
Payment required to be paid. Any contest of a denial of refund
shall be controlled by Paragraph 7(m).
(o) Expenses. If any dispute
should arise under this Agreement after the Control Change Date
involving an effort by Executive to protect, enforce or secure
rights or benefits claimed by Executive hereunder, Railway shall
pay (promptly upon demand by Executive accompanied by reasonable
evidence of incurrence) all reasonable expenses (including
attorneys’ fees) incurred by Executive in connection with
such dispute, without regard to whether Executive prevails in
such dispute except that Executive shall repay Railway any
amounts so received if a court having jurisdiction shall make a
final, nonappealable determination that Executive acted
frivolously or in bad faith by such dispute. To assure Executive
that adequate funds will be made available to discharge
Railway’s obligations set forth in the preceding sentence,
Railway has established a trust and upon the occurrence of a
Change in Control shall promptly deliver to the trustee of such
trust to hold in accordance with the terms and conditions
thereof that sum which the Railway Board shall have determined
is reasonably sufficient for such purpose.
(p) Prevailing Provisions. On and
after the Control Change Date, the provisions of this
Paragraph 7 shall control and take precedence over any
other provisions of this Agreement which are in conflict with or
address the same or a similar subject matter as the provisions
of this Paragraph 7.
8. Mitigation and Other
Employment. After a termination of
Executive’s employment pursuant to Paragraph 4(d)(i)
or a Change in Control as defined in Paragraph 7(d),
Executive shall not be required to mitigate the amount of any
payment provided for in this Agreement by seeking other
employment or otherwise, and except as otherwise specifically
provided in Paragraph 4(d)(ii) with respect to health and
life insurance and in Paragraph 7(e) with respect to
health, prescription and dental benefits, no such other
employment, if obtained, or compensation or benefits payable in
connection therewith shall reduce any amounts or benefits to
which Executive is entitled hereunder. Such amounts or benefits
payable to Executive under this Agreement shall not be treated
as damages but as severance compensation to which Executive is
entitled because Executive’s employment has been terminated.
9. KCS Not An
Obligor. Notwithstanding that KCS has
executed this Agreement, it shall have no obligation for the
payment of salary, benefits, or other compensation hereunder,
and all such obligations shall be the sole responsibility of
Railway.
10. Notice. Notices and all
other communications to either party pursuant to this Agreement
shall be in writing and shall be deemed to have been given when
personally delivered, delivered by facsimile or deposited in the
United States mail by certified or registered mail, postage
prepaid, addressed, in the case of Railway or KCS, to Railway or
KCS at 000 Xxxx 00xx Xxxxxx, Xxxxxx Xxxx, Xxxxxxxx
00000, Attention:
9
Secretary, or, in the case of the Executive, to him at at
000 Xxxx 00xx Xxxxxx, Xxxxxx Xxxx, Xxxxxxxx 00000, or
to such other address as a party shall designate by notice to
the other party.
11. Amendment. No provision
of this Agreement may be amended, modified, waived or discharged
unless such amendment, waiver, modification or discharge is
agreed to in writing signed by Executive, the President of
Railway and the President of KCS. No waiver by any party hereto
at any time of any breach by another party hereto of, or
compliance with, any condition or provision of this Agreement to
be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the time or at
any prior or subsequent time.
12. Successors in
Interest. The rights and obligations of KCS
and Railway under this Agreement shall inure to the benefit of
and be binding in each and every respect upon the direct and
indirect successors and assigns of KCS and Railway, regardless
of the manner in which such successors or assigns shall succeed
to the interest of KCS or Railway hereunder, and this Agreement
shall not be terminated by the voluntary or involuntary
dissolution of KCS or Railway or by any merger or consolidation
or acquisition involving KCS or Railway, or upon any transfer of
all or substantially all of KCS’s or Railway’s assets,
or terminated otherwise than in accordance with its terms. In
the event of any such merger or consolidation or transfer of
assets, the provisions of this Agreement shall be binding upon
and shall inure to the benefit of the surviving corporation or
the corporation or other person to which such assets shall be
transferred. Neither this Agreement nor any of the payments or
benefits hereunder may be pledged, assigned or transferred by
Executive either in whole or in part in any manner, without the
prior written consent of Railway.
13. Severability. The
invalidity or unenforceability of any particular provision of
this Agreement shall not affect the other provisions hereof, and
this Agreement shall be construed in all respects as if such
invalid or unenforceable provisions were omitted.
14. Controlling Law and
Jurisdiction. The validity, interpretation
and performance of this Agreement shall be subject to and
construed under the laws of the State of Missouri, without
regard to principles of conflicts of law.
15. Entire Agreement. This
Agreement constitutes the entire agreement among the parties
with respect to the subject matter hereof and terminates and
supersedes all other prior agreements and understandings, both
written and oral, between the parties with respect to the terms
of Executive’s employment or severance arrangements.
10
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the 10th day of February, 2006.
THE KANSAS CITY SOUTHERN RAILWAY COMPANY
| By: |
/s/ Xxxxxx
X. Xxxxxxx
|
Xxxxxx X. Xxxxxxx, President and CEO
| By: |
/s/ Xxxxxxx
X. Xxxxxxx
|
Xxxxxxx X. Xxxxxxx, Chairman, President,
and CEO
and CEO
EXECUTIVE
|
/s/ Xxxxxxx
X. Xxxx
|
Xxxxxxx X. Xxxx
11
Appendix A
WAIVER
AND RELEASE
In consideration of the benefits described in the Employment
Agreement, I do hereby fully waive all claims and release The
Kansas City Southern Railway Company (KCSR), and its affiliates,
parents, subsidiaries, successors, assigns, directors and
officers, fiduciaries, employees and agents, as well as any
employee benefit plans from liability and damages related in any
way to any claim I may have against or KCSR. This waiver and
release includes, but is not limited to all claims, causes of
action and rights under Title VII of the Civil Rights Act
of 1964, as amended; the Civil Rights Act of 1991; the
Age Discrimination in Employment Act of 1967, as amended;
the Civil Rights Act of 1866; the American with Disabilities Act
of 1990; the Rehabilitation Act of 1973; the Older Workers
Benefit Protection Act of 1990; the Employee Retirement Income
Security Act of 1974, as amended; the Worker Adjustment and
Retraining Notification Act; the Family and Medical Leave Act;
the Federal Employers Liability Act; the Railway Labor Act,
including bumping rights, rights to file a grievance, rights to
a hearing (whether before any company official, any system,
group, regional or special adjustment board, the National
Railroad Adjustment Board, or any other entity), and any rights
to arbitration thereunder; the Missouri Human Rights Act, the
Kansas Act Against Discrimination, the Kansas and Missouri
Workers’ Compensation acts, and all local state and federal
statutes and regulations; all claims arising from labor
protective conditions imposed by the Interstate Commerce
Commission or the Surface Transportation Board; all any KCSR
incentive or benefit plan or program, and any rights under any
collective bargaining agreement, including seniority rights,
bumping rights and reinstatement rights, rights to file or
assert a grievance or other complaint, rights to a hearing, or
rights to arbitration under such agreement; and all rights under
common law such as breach of contract, tort or personal injury
of any sort.
I understand that this Agreement and Release also precludes me
from recovering any relief as a result of any lawsuit, grievance
or claims brought on my behalf and arising out of my employment
or resignation of, or separation from employment, provided that
nothing in this Agreement and this Release may affect my
entitlement, if any, to workers’ compensation or
unemployment compensation. Additionally, nothing in this
Agreement and Release prohibits me from communications with,
filing a complaint with, or full cooperation in the
investigations of, any governmental agency on matters within
their jurisdictions. However, as stated above, this Agreement
and Release does prohibit me from recovering any relief,
including monetary relief, as a result of such activities.
If any term, provision, covenant, or restriction of this
Agreement and Release is held by a court of competent
jurisdiction to be invalid, void or unenforceable, the remainder
of this Agreement and Release and the other terms, provisions,
covenants and restrictions hereof shall remain in full force and
effect and shall in no way be affected, impaired or invalidated.
I understand and agree that, in the event of breach by me of any
of the terms and conditions of this Agreement and Release, the
Railway will be entitled to recover all costs and expenses as a
result of my breach, including but not limited to, reasonable
attorneys’ fees and costs.
I have read this Agreement and Release and I understand all of
its terms. I enter into and sign this Agreement and Release
knowingly and voluntarily, with full knowledge of what it means.
| Employee Signature | Date | |
| Employee Name (Please Print) | Social Security Number |
A-1
